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Deferral of Payroll Taxes

Deferring Payroll Tax Obligations

New Guidance From the IRS

New guidance issued on August 28, 2020 explains how employers can defer withholding and remit an employee’s share of the Social Security tax when wages are below a certain amount. This guidance was issued to implement President Trump’s Presidential Memorandum signed on August 8, 2020. However, the guidance provided is brief and we understand it still leaves employers with questions about how and whether to implement the deferral.

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The most crucial elements to understand are that this Presidential Memorandum does not forgive Social Security taxes; it only defers them, meaning employees will have to pay the taxes later unless Congress passes a law to eliminate the liability. Secondly, neither the Order nor the guidance require an employer to defer the payment of taxes. An employer may choose to continue to withhold and deposit employee taxes as usual.

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Why

The deferment is offered in response to COVID-19 to provide emergency relief.

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When

This memorandum allows deferal of deposit and payment of an elgible employee’s share of the Social Security taxes on wages or compensation paid from September 1, 2020 through December 31, 2020. Amounts can be deferred without penalties, interest or additions to the tax.

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 Who is Elligible

This applies to employees whose wages or compensation, payable during any biweekly pay period, generally are less than $4,000, or the equivalent amount with respect to other pay periods.

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Payment of Deferred Applicable Taxes

An Affected Taxpayer (employer) who has deferred the taxes (for the employee) must pay them between January 1, 2021 and April 30, 2021 or interest, penalties and additions to tax will begin to accrue on May 1, 2021.

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We understand this to mean that the employer can make arrangements to collect the total applicable taxes from an empoyee. However, there are no additional details yet provided on how an employer should make these arrangements to collect unpaid tax if an employee leaves their job before the deferred taxes are due. Presumably, if an employer is unable to collect unpaid taxes from an employee, the employer will be obligated to pay the tax.

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Unless additional guidance is provided on this matter, we anticipate that most employers will find the most practical course of action to be to continue withholding and paying the employees’ taxes as usual. We are closely monitoring this situation and will share important updates as guidance is made available.

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One Important Note to Employers

Under the CARES Act, employers can already defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments – one at the end of 2021 and the other at the end of 2022.

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For more information visit our COVID-19 Guidance Center.


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We are committed to serving clients with care, and we are confident we are taking precautionary measures to promote the health and safety of our staff and clients. We know that this is a stressful time for everyone, and we hope that you, your family and our community stay safe.

Please call us at 800-676-7567 if you have any questions

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